Dear SaaStr: Why Are Buyers Not Ready to Spend Big on Acquisitions as Readily Today as in the Past?
In tech at least, there are two big issues:
#1. Revenues Multiples Are Down
Even the best public SaaS companies are worth ~10x revenue today. In 2021, they were often worth 40x revenue. So that seems to make deals more expensive in terms of how much stock (if not cash) it takes to buy something. And it also makes it harder to meet the “ask” of a startup that might want a much higher revenue multiple.
When times are really good, more deals get done.
E.g., Salesforce bought Slack for $27 Billion when Slack was doing $1B in revenue. Both the markets and Salesforce’s revenue multiple were much stronger then.
#2. Antitrust Review is Way Up
It’s gotten so, so much harder — and takes longer — to get larger M&A deals approved by global antitrust regulators. Adobe giving up on trying to buy Figma was a wake-up call for many in the industry. Big deals way slowed way down after that. A deal agreed to but not closing is very risky for both sides.
The Adobe acquisition of Figma will not go through after 15 months of regulatory review.
I suspect this will give even further pause for large tech firms on the M&A front.
— Brian Halligan (@bhalligan) December 18, 2023
There are other issues, from too much VC raised to interest rates at the margin. But those are the biggest two.
A related post and more here: